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The Best Ways to “Bank” Your Money

by: Bill Pratt

This article is part of our 52 week journey through Bill’s latest book, “The Graduate’s Guide to Life and Money.” Each week, a full excerpt from his book will be presented from beginning to end. To get your copy of his book, visit www.TheGraduatesGuide.com.

This week we will discuss banks vs. credit unions.

Remember when you were just a kid and your piggy bank got full? Your parents told you it was time to open up a savings account. That way you could empty your piggy bank and start all over again. Years ago, banks gave out little booklets where they stamped your deposits and interest earned (called passbook savings accounts). In the years since, the banking industry has really matured. We now have more choices available to us than anyone could have imagined. Generally, you can do most of your “banking” at a bank, a savings & loans, or a credit union. A savings & loan is similar to a bank, but with fewer services. In general, I prefer credit unions. They tend to have lower fees, and they pay better rates on their savings accounts. Credit unions are also easier to deal with than banks.

Most banks offer everything from financial investments, to certificates of deposit (CDs) and home mortgages. Banks tend to have higher fees and pay lower rates on their savings. Most banks also have minimum balance requirements on their accounts. If your account drops below the minimum amount, you will be charged a fee. You may be able to have the requirement waived if you have direct deposit from your employer. One of the advantages of banks is they normally have multiple branch locations. They may be located all over the city, the state, or even the country. For many people, having all of these available locations is most important.

Credit unions are very similar to banks in some aspects, but they are actually owned by the members. They usually exist for people with a common interest, such as working for the same union, or living in a specific community. For this reason, they tend to be more favorable to their members (or customers). The fees they charge are lower, the interest rates they pay are usually higher, and they don’t require as large of a minimum balance, if any, in an account.

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Of course, there are disadvantages of using credit unions. Most only have one or two branch locations (with some exceptions, such as state or federal employee credit unions) and the number of free ATM machines available tends to be very limited within a credit union network. Many of them do not offer first mortgages on your home, so you may still have to deal with a bank when you buy your first home.

When choosing between a bank and a credit union, you must decide what is important to you. If you run to the ATM every other day (a habit we’ll discuss a little later on), you may prefer a bank with a large ATM network. If you tend to keep very low balances on your checking and savings accounts like most people, the credit union may be the better place to park your cash.

Whatever you decide, try to find a checking account with minimal or zero fees. There is nothing more painful than putting your money in a bank that charges you to do so. That would be like having a wallet or purse that charges you every time you open it. You’d probably just start keeping your money in your front pocket. Some banks even charge a fee for every check you use! Try to avoid these banks if at all possible. There are almost always better alternatives. Here are some tips on avoiding checking fees:

• Direct Deposit: Some banks waive account fees if your paycheck is direct deposited into your account. With a direct deposit, your money is wired directly into your account, so you don’t have to wait in line to cash your paycheck. The downside is you still have to go to the bank (or an ATM) to get the cash.

• Average Daily Balance: If you do have a minimum balance requirement each month, using the average daily balance method is preferable. Some banks charge you a fee if your account balance falls below a certain amount any time during the month. If they use average daily balance, as long as the balance averages more than the minimum requirement, you won’t pay a fee.

• Basic Checking: You may be able to find a basic checking account that offers no interest rate and no minimum balance, but only allows a select number of checks to be written and a select number of ATM withdraws. If you use your ATM a lot, this won’t work for you.

• Avoid ATM Fees: Find out what your bank’s policy is for ATMs. Do they charge you each time you use one of their ATMs? What about an out-of-network ATM? How much do they charge per transaction? Also, see if there are only a limited number of free transactions per month. Be aware some banks charge you a fee to use your debit card. That’s right, you pay for the privilege of spending your own money at the grocery store. Always look at the fine print.

Next week we will discuss tips for ATMs and checks, including how to properly write a check.

Bill Pratt is a former credit card executive turned student-advocate. He is the author of Extra Credit: The 7 Things Every College Student Needs to Know About Credit Debt & Ca$h and The Graduate’s Guide to Life and Money. Bill speaks at colleges to educate and entertain students about real-life issues in money, leadership, and success. His goal is to help students succeed personally and financially so they can improve the lives of those around them. You can learn more at www.ExtraCreditBook.comor www.TheGraduatesGuide.com.